American businesses do not demonstrate patriotism by paying taxes at a rate that puts them at a competitive disadvantage when there are lawful alternatives. A request or, worse, mandate that companies make such a sacrifice for the good of the government treasury is troubling from a government with a capitalist system.
In our economic system, government is one of several stakeholders to whom businesses answer. Investors, employees, and customers are others. It betrays the duties businesses owe to those other stakeholders to abstain from a ready tool that maximizes wealth, creates jobs, and lowers prices. It is in those ways that the leaders of American businesses, even erstwhile American businesses, demonstrate their loyalty to the values that made this country great. That's patriotism in action. Senator Manchin should be proud.
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The argument goes that the drug and medical device companies that, according to The New York Times, are among the heaviest recent users of inversion, should particularly not leave the country because American taxpayers pay for such health products largely with Medicare and Medicaid dollars. Well, OK, but that's not an appeal to love of country; that's an appeal to guilt.
All of this is not to say that inversion and the erosion of tax revenues that goes with it are not cause for alarm. It is to say that legislatively blocking inversion is the wrong response to the alarm. It tends to the symptoms rather than curing the disease that is causing this flight. One also suspects that it would be as futile as a game of whack-a-mole; another means to avoid dysfunctional corporate taxation would pop up soon enough.
As Secretary Lew recognizes in his letter, the best way to address this problem is through the enactment of business-tax reform to reduce or eliminate the incentive companies now have to limit the exposure of corporate revenues to American tax rates. Is that harder than extinguishing inversion? Perhaps. But the way to eliminate inversion as an attractive option is not by leaving in place a taxing structure that make inversion so irresistible in the first place.
Commentary by Dan Eaton, a partner with the San Diego law firm of Seltzer Caplan McMahon Vitek where his practice focuses on defending and advising employers. He also is a professor at the San Diego State University College of Business Administration where he teaches classes in business ethics and employment law. Follow him on Twitter